InvestorQ : Do you think that the RBI has doing the wrong thing by waiting too long to hike interest rates, when yields have crossed 7%?
Lavanya Subramanian made post

Do you think that the RBI has doing the wrong thing by waiting too long to hike interest rates, when yields have crossed 7%?

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Anamika Sodhani answered.
1 month ago
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That could be one way of looking at it, but it is rather intriguing why the RBI is still waiting to raise the interest rates and to change the accommodative stance of the policy. The problem is that if RBI is serious about inflation, then the fact is that only inflation driven by base effect comes down on its own. The other two inflations driven by demand pull factors and supply push factors, need action and a concerted strategy. That was not evident in the latest monetary policy on 08-April. The RBI appears to have overlooked inflation altogether.

In a nutshell, one can say that the monetary policy announced on 08th April maintained status quo on all fronts. For instance, repo rate was pegged at 4%, reverse repo rate at 3.35% and bank rate / MSF rate at 4.25%. It did some tinkering with reverse repo rates indirectly by introducing the standing deposit facility (SDF), but markets need to see affirmative action. Not doing anything may look like a good strategy in uncertain times but such a refusal to take an affirmative stand can have larger repercussions for macros.

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